us dr11 cloud hits the enterprise jul12

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issue 11 | 2012

Complimentary article reprint

by pAUl clEMMONS, JASON GEllER ANDADAM MESSER> IllUSTRATION by ElIZAbETH bADDElEy

Five things usiness eaders need to know aout

oud omuting and software as a servie

CloudHitsthe

Enterprise


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Deloitte Review deloittereview.com

40 cloud hits the enterprise


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deloittereview.com Deloitte Review

41cloud hits the enterprise

Five things business leaders need to know about

cloud computing and software as a service

by Paul Clemmons, Jason Geller and adam messer

> illustration by elizabeth baddeley

Cloud HitstheEnterprise

Millions of people use cloud computing every

day to send and receive personal emails,

shop online, read the news and more. But

thats just the leading edge of a growing storm. Cloud

services are also penetrating the walls of the enterprise,upending IT organizations and operating models alike.

Business leaders in every function need to understand

cloud basicsboth the opportunities and the risks

and that means going geek.


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Cloud has teChniCal advantages that translate direCtly into

business value

Looking beyond the hype around cloud, there is one uniying theme to re-

member: cloud capabilitiessoware, inrastructure and platormare

delivered as a service. Web-based email, or example, is a ubiquitous example

o soware as a service (SaaS). Instead o having soware loaded onto your

laptop or tablet, it is hosted on the Internet, largely insulating the user rom

the underlying technology. Inrastructure and platorm services deal with the

nuts and bolts o cloud computingaspects that are primarily o interest to I.

Yet there are a number o technical and business advantages over traditionalorms o computing that can have a direct impact on how businesses operate.

Tese include:

Broad network access: Services are accessible rom a wide variety o de-

vices (such as PCs, smartphones and tablets) and rom any location with

network access to the cloud.

Resource pooling: Computing resources are pooled to serve multi-

ple customers, which creates signicant eciencies and economies oscale. Resources are deployed based on demand, and customers gen-

erally dont know (and dont need to know) where those resources are

physically located.

Rapid elasticity: Computing capabilities in the cloud are essentially

unlimited and can be quickly scaled up or down in response to an orga-

nizations changing needs.

On-demand sel-service: New services and capacity can be provisioned

quickly and easily, oen without vendor employee involvement.

Measured service: Businesses pay only or the cloud services and

resources they actually use.

Tese technical advantages translate into some apparent, but signicant,

business advantages:

Rapid implementation: Less time is required to get up and running oncloud-based systems.

Cost predictability: Clouds pay-as-you-go model, which includes the

cost o system upgrades, makes it easier to predict I costs.

Balanced ROI: Cloud delivers a aster return on I investments, thanks

to accelerated implementation and elimination o upront licensing and

inrastructure costs.


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Agility: Companies can quickly develop and deploy new I capabilities

and business processes to stay ahead o the competition and keep pace

with changes in the marketplace.

Scalability: Cloud provides a exible platorm that can grow or shrink

as needed, enabling businesses to explore new markets, pursue new in-

novations and serve new customer segments.

the disruption is real

At rst glance, clouds

business im-

pact may be

analogous to

what hap-

p e n e d

w i t h i n

the music

indust r y when its

distribu-

tion shi-

ed rom

analog to

d i g i t a l

but in many

ways it is much broader in scope and scale. In music, the shi to digital opened

the door to innovative products and services that were previously unimagina-

ble, creating new markets and turning the music industry upside down. Con-

sider the case o Apple, which began its remarkable ascent with the iPod music

player and rode a string o subsequent successesincluding the iunes eco-

system, iPhone and iPadto become the dominant orce in music and mobile

devices, andas this is being writtenthe worlds most valuable company.

But the business impact o cloud isnt limited to just a ew industries or a

handul o companies. Businesses o every shape and size are using cloud and

SaaS to gain instant access to world-class I capabilities without having to spend

time and money acquiring, developing and maintaining their own I systems

and applications. Tis new model enables large companies to respond more

quickly to market shis and emerging business opportunities, improving their

agility and exibility. At the same time, it enables smaller companies to grow at

SaaS is now widely

recognized as a core

component of the

future IT landscape.

SaaS market share in enterpr ise

appl icat ions i s growing rapidly,

and major vendors such as SAP

and Oracle are working hard to

develop c loud-based vers ions

of their market- leading

enterpr ise appl icat ions.


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unprecedented speed and in some instances to compete on equal ooting with

businesses that are much larger.

First Horizon, a regional bank, recently adopted Salesorce.coms Sales

Cloud to improve support or its sales and marketing unctions and to help

eliminate operational silos. Te bank had been sufering rom inconsistent mar-

keting processes across regions, as well as variances in incentive systems, and

was having trouble tracking opportunities throughout the sales cycle. By using

a cloud solution, First Horizon gained a consistent customer view, closed the

loop between sales and marketing, and improved visibility and management

reporting. Although this was a large deployment, the organization was able tocomplete the implementation in monthsnot yearsand quickly captured sig-

nicant benets, including increased revenue through improved cross-selling

and up-selling, an improved customer experience, and signicant cost savings

compared to its previous ERP system.

saas is firmly established in the enterprise spaCeand probably even

in your own Company

Large enterprises are using SaaS to become more exible and nimble. Tey

are also using SaaS to make key business processes more efective and e-

cient, and are harnessing the power o the cloud to stay in tune with customers

and to improve collaboration and teamwork across organizational boundaries.

At the moment, SaaS is having the biggest impact in our key business areas:

Customer relationship management (CRM): Tis was one o the rst

areas where SaaS provided a legitimateand oen superioralterna-

tive to traditional I systems. SaaS can help a marketing organization

improve coordination o activities across the enterprise and present a

unied ace to the customer. Large enterprises are using SaaS CRM to

gain a 360-degree view o their customers to help boost sales, improve

segmentation and increase cross-selling and up-selling.

Enterprise content management (ECM): With the volume o inorma-

tion growing exponentially, companies are using SaaS to stay on top o all

the content they generateincluding everything rom product manuals

and sales contracts to emails, word documents and social media. ra-

ditional on-premise ECM tools require time-consuming inrastructure

upgrades to accommodate the need or increased storage capacity. SaaS-

based ECM tools have the advantage o being rapidly scalable. Also, SaaS

ECM tools have the native ability to make inormation searchable and

accessible rom almost any device and location.


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Productivity and collaboration: Many companies are supplementing

traditional PC-based oce soware suites with SaaS versions that are

easier to support and maintain, and that take advantage o cloud to im-

prove collaboration. SaaS-based documents can be shared in real time

and are no longer locked up within a single team or departmental silo.

Other advantages include ubiquitous search and access to documents,

and ewer problems with version control.

Human capital management (HCM): SaaS adoption in human resourc-

es has increased rapidly over the last ew years. As companies become

more global, there is greater need to coordinate HCM activities such as

recruiting, training and succession planning across geographies. In the

past, smaller market operations oen had to wait years or their com-

panys top-down ERP and HCM rollouts to trickle down. SaaS turns the

tables by making it economically easible or a small market to adopt

HCM rst, and then roll up the solutions and lessons learned to help

jump-start adoption at the enterprise level.

saas expands its reaCh

SaaS is now widely recognized as a core component o the uture I land-scape. SaaS market share in enterprise applications is growing rapidly, andmajor vendors such as SAP and Oracle are working hard to develop cloud-based

versions o their market-leading enterprise applications. Tey are also aggres-

sively pursuing strategic acquisitions to improve their competitiveness in this

ast-paced and critical segment. SAP recently acquired SuccessFactors (HCM

and talent), while continuing to develop its own cloud ofering, ByDesign.

Likewise, Oracle recently acquired RightNow (CRM and customer service)and

aleo (talent), while continuing to invest in its own cloud-based enterprise plat-

orm, Fusion.

Investment markets are also placing big bets by providing signicant late-

stage unding or ast-growth companies in the enterprise application space. All

o this activity suggests that SaaS is well on its way to becoming a leading delivery

model or enterprise applications. Many analysts agree, with Forrester Research,

Inc. predicting the SaaS market will grow to become a $132.57 billion industry by

2020, up rom $13.4 billion in 2010, a growth rate o 890 percent over the course

o a decade.1 In 2020, the SaaS market is expected to represent 83 percent o the

total market or public cloud services, ar outpacing the growth o other cloud

service models including inrastructure as a service (IaaS), platorm as a ser-

vice (PaaS), and business process as a service (BPaaS) (see gure 1).


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Cloud serviCe models

ifc vc (is): IaaS is the lowest level of cloud and can be thought of as a

cloud-based data center that offers businesses direct access to virtual IT assets such as servers

and disk drives.

Pf vc (Ps): PaaS is the middle level and is a more esoteric offering which

provides a virtual IT environment that allows businesses to develop and run their own custom-

ized applications without having to manage the details of a physical or cloud-based data center.

sfw vc (ss): SaaS is a higher-level service model that provides users access to

software applications while largely insulating them from the underlying technology.

b pc vc (bPs): BPaaS is the highest level and provides businesses with

access to complete business processes. The key difference with traditional business process

outsourcing is that the infrastructure and people required to deliver the service are shared.

By 2020 SaaS will account for $133 billion of the $160 billion industry, while IaaS will make up

$5 billion, PaaS $12 billion, and BPaaS $10 billion.

Source: Sizing the Cloud. Ried, Stefan and Kisker, Holger. Forrester Research, April 21, 2011

Figure 1. SaaS dominates the cloud market

Total Public CloudMarkets (US$ billions)

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

$20

$40

$60

$80

$100

$120

$140

$160

$180

$0

BPaaS

SaaS

PaaS

IaaS


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SaaS ERP will likely grow signicantly as Oracle and SAP continue to pursue

aggressive development and acquisition strategies. Te ocus will initially be

on small and mid-size companies but over time will likely expand to include

ever larger enterprises. However, it may be years beore SaaS solutions develop

the deep end-to-end capabilities necessary to compete with traditional ERP

systems in the large enterprise space.

In the interim, nance solutions are likely to be the next major enterprise

capability to be ofered via SaaS. Finance systems are ed by CRM and HCM,

which are two areas where SaaS has already gained signicant enterprise trac-

tion. Workday has invested heavily in the nance space, and there is alreadystrong market demand or Workday nancials. Gartner has stated that low cur-

rent adoption o SaaS nancials is driven more by limited supply o options

rather than limited demand. As vendors continue to roll out SaaS nancial

solutions, adoption will likely accelerate quickly, closely tied to the growth o

SaaS-based CRM and HCM.

In parallel with the push into nance and ERP, there will likely continue to

be signicant investment in a variety o niche markets or SaaS. Some niche

vendors are targeting the specialized needs o peripheral unctions such as legal

and real estate. Others are ocused on lling gaps or extending the capabilities

o leading SaaS applications, creating an ecosystem that can better address the

demands o a large enterprise.

Major SaaS vendors are aggressively acquiring niche players to help round

out their market oferings or to overcome real or perceived barriers to SaaS

adoption. For example, Salesorce.com recently acquired Radian Six, which

provides tools to monitor and proactively address issues that users raiseon witter, Facebook and other social media channels. It also added to its

HCM/alent capabilities with the acquisition o Rypple, a perormance man-

agement tool that ocuses on improving perormance through social goals,

continuous eedback and meaningul recognition.2

saas and Cloud are better, faster and sometimes Cheaper

According to a recent Forrester survey o more than 1,000 rmsacross North America and Europe, cloud buyers anticipate the

ollowing benets:3

Lowercostbothupfrontandlong-term(48percentofrespondentsan-

ticipated long-term cost savings rom moving to SaaS).

Fasterdeliveryofapplicationfeaturesaswellasgreaterbusinessagility.

Bettersupportandsatisfaction.


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Tese ndings suggest that cloud solutions are cheaper than on-premise so-

lutions, but thats not always true. In act, companies such as Salesorce.com

and Workday are leaders in their market segments and are priced accordingly.

Although the upront costs o SaaS are generally lower, a recent Gartner study

ound that over the long run, dened as ve years or more, inrastructure and

license costs o on-premise solutions are oen less expensive than SaaS.4 Tis

is particularly true or businesses with highly ecient I operations. Although

cost remains an important decision actor when considering SaaS, it should not

be viewed as the entire business case.

preparing for saas

Although SaaS is more exible and can be implemented much more quicklythan traditional enterprise technologies, it also presents new challenges.Because SaaS has the potential to undamentally change how a business oper-

ates, there are several important steps a company should take to prepare or

the move:

Create a cloud-ready organization. SaaS can provide the tools to transorm

how people work. But to more ully realize the benets, the organization needs

to align with the new cloud-based model. Tis requires new skills and a col-

laborative approach that cuts through organizational boundaries. For example,

in a non-cloud environment, a sales rep looking or help to answer a customers

technical question might re of an email to a colleague in engineering and then

hope or a response within a ew days. But or enterprises that use Salesorce.

com and its collaboration tool Chatter, the reps standard process or answering

a technical question might involve doing a quick search o all Chatter posts to

see i the question had already been answered. I it hasnt been answered, she

could post the question so it would immediately be visible to everyone in the

company with the skillset to address it. o take advantage o these new capabili-

ties, people in diferent parts o the organization must learn to work together.

echnology alone is not enough. Readying an organization or the shi rom

controlling and protecting inormation to acilitating the ree ow o inorma-tion, thereore, is an important part o planning.

Redefne the roles o IT and the business. With SaaS, the business side o

the enterprise has more direct control and responsibility or decisions about its

systems and data. It can adapt its systems and processes to changes in the mar-

ketplace without having to go through the I department. For example, a sales


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manager who wants to add a qualication step to the sales process can have

his business analyst make the change rather than ling a ticket with I. Per-

haps more enticingly rom an I perspective, SaaS makes that groups role more

strategic, with increased ocus on strategic technology issues and less ocus on

routine activities such as bug xes, soware upgrades and system maintenance.

For SaaS to be efective, both the business and I must understand and embrace

their new roles.

For businesses considering SaaS, it is important to assess how prepared the

I unction is to relinquish control over routine system activities and to ocus

on using inormation and technology as a strategic driver. Tis typically will a-ect Is skills and stang models, and suggests a realignment o business and

I leader incentives around these desired results.

Strengthen IT governance. In the past, many organizations have gotten by

with lax I governance because their systems and data were largely contained

within their own walls. As I assets shi to the cloud, weaknesses in governance

can become a major source o risk. With SaaS, some I assets are controlled

by a third party and no longer reside within the real or perceived saety o a

companys systems. Under this new model, strong governance is needed to help

ensure the companys security and privacy standards are maintained. Tis in-

cludes clear policies and procedures about user access and data quality, ormal

audit trails to support regulatory compliance, and robust controls to veriy that

the right things are being doneand to identiy hidden issues beore they be-

come problems.

Businesses considering SaaS should conduct a ull assessment o poten-tial vulnerabilities with explicit mitigation strategies or all signicant risks.

Is there a governance plan that is consistently applied across the enterprise and

how might it need to be strengthened?

Design a cloud-ready IT architecture. Aer decades o acquisitions and

organic growth, many businesses are trapped in a rats nest o redundant sys-

tems, data silos, point solutions, hard-wired interaces and human middleware.

SaaS can help solve this problem, but it may require some serious untangling to

get there. Te key is to rationalize I systems and assets into logical units that

are highly cohesive (i.e., all revolving around the same business activity instead

o having related unctionality scattered across unrelated systems) and loosely

coupled(i.e., not hardwired into unrelated systems). Having an I architecture

with these two critical attributes makes it much easier to carve out a specic

business capability and move it into the cloud. Tis is a large undertaking or


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many enterprises and does not have to be perormed or every unctional area

at once. However, or most enterprises it is an important precursor to global

standardization and SaaS adoption.

Defne criteria or deciding which activities to migrate. Another key step

to SaaS adoption is to dene explicit criteria or deciding which capabilities are

the best candidates or migration to the cloud. Questions to consider include:

How mature are the existing SaaS applications or that business area, and do

their capabilities align with the specic needs o your business? Are your exist-

ing systems and data in that area ready to migrate, or are they still a tangledmess? Which parts o your company have the strongest business case in terms

o strategic impact and ROI, and are they hungry or improvement or likely to

drag their eet? Moreover, it is important that business and I leaders agree on

a common set o selection criteria or SaaS migration.

Develop a cloud strategy and roadmap. Te move to SaaS generally occurs

in phases, so its essential to have a clear strategy and roadmap based on the de-

ned selection criteria. One major actor to consider is an organizations overall

stance toward cloud adoption. Some organizations are taking an aggressive po-

sition, moving to cloud wherever they can, as quickly as they can, even i their

existing systems are adequate. Tese organizations believe the benets o ex-

ibility, improved user experience and reduced I efort outweigh the adoption

costs. Others are taking a more reactive position, considering cloud whenever

a pressing need arises or a new system but not actively looking to replace sys-

tems that are currently sucient. Regardless o the approach, a SaaS adoptionstrategy includes guiding principles that reect the organizations overall stance

toward cloud, a roadmap that species the order and timing o SaaS moves (as

well as the required organizational, I and governance changes), and specic

plans or managing an agile transition.

Establish an integration plan. Integrating a SaaS solution with existing sys-

tems can be one o the most complex, costly and time-consuming aspects o

cloud adoption. In act, it is not uncommon or the integration efort to take

signicantly longer than deployment o the core SaaS solution itselespecially

i the organizations existing I architecture remains tangled. Internal politics

can also be a major stumbling block, with various system owners vying to be

the master source o data or the new solution. Organizations going this route

will need a ormal integration plan that clearly spells out how, and to what ex-

tent, the SaaS solution will be integrated with existing systems, as well as which


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systems will be the master source o data. Moreover, it is essential to conrm

that all system owners have bought into the plan.

yes or no to saas?

here is a lot o momentum and some hype surrounding SaaS, but it is notthe only option and not entirely straightorward. Tere are many actorsto consider. On the plus side, SaaS can help a large enterprise achieve the speed

and agility o a much smaller company, thanks to low upront investments, rap-

id implementation, and easy scalability. SaaS also has a distinct cost advantage

in the short run, although the long-term cost savings are less clear.Yet perhaps the biggest constraint to SaaS adoption in the large enterprise

space is the capability gap between established enterprise applications and still-

maturing SaaS applications. In some areas, such as CRM, the capability gap is

already negligibleand in some cases may even avor SaaS. But in other areas,

SaaS-based enterprise solutions still have a ways to go.

Business leaders must careully weigh the available SaaS oferings against

their companys unique requirements and then make their own decisions. In

cases where SaaS comes up short, leaders should revisit their decisions oen

because SaaS capabilities are maturing rapidly and can quickly change the

whole equation.

In practical terms, SaaS adoption is no longer a radical or experimental

proposition. For most businesses, it has emerged as a viable weapon in the stra-

tegic quiver. How and when to deploy it are increasingly crucial questions that

business leaders will need to explore. DR

Paul Clemmons is a principal with Deloitte Consulting LLP and serves as the global leaderfor Deloittes Salesforce.com practice. He is also the leader for the U.S. Emerging Solutionsservice line.

Jason Geller is a principal with Deloitte Consulting LLP and serves as the Global and USLeader for Deloittes HR ransformation practice.

Adam Messeris a subject matter advisor in Deloittes Cloud Computing Center of Excellence,Deloitte Consulting LLP.

Te authors would like to acknowledge the contributions ofVilija Boguta, Ross Gallowayand

Sunil Pai of Deloitte Consulting LLP.

Endnotes

1. Sizing the Cloud. Ried, Stean and Kisker, Holger. Forrester Research

2.

3. Te SaaS Market Hits Mainstream: Adoption Highlights 2011, Forrester Research, May 3, 2011

4. Gartner Fact Checks the Five Most-Common SaaS Assumptions, Te Gartner Group, February 19, 2009

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